Dear All, Greetings! i have sold our residential flat in Jan'2020 which have bought in Dec'2012. The total capital gain assessed from this transaction was Rs.5,20,000 (5.2 Lakh). My father owns a land on his Name and I am only heir, he is retired but filling null returns every year My questions: 1.) Can I use my capital gain money to construct the residential property on the land owned by my father? 2.) Can I Claim the same for tax saving under Section 54 in my returns, if yes what type of documents I would have to produce, while filling tax. Thank you Sunny
My View:
1. You can construct a house on that land as there is no provision specifying such conditions.
2. There is no need to produce while filling return but you have to mention correct detail like section and amount etc.
Kind Regards
Sohan Singh Rawat
Chartered Accountant
Dear Sunny,
Hope you are doing well !!
1 & 2. Yes, you can use capital gain amount to construct the residential property on the land owned by your father but you will not be eligible to claim the same for capital gain exemption.
Against sale of residential house, you need to invest long term capital gain in the below options to get capital gain exemption:
-You can claim an exemption from LTCG, under section 54 of the income-tax Act if the LTCG is reinvested in a new residential property located in India within the specified time frames. Where the new property is purchased, the gain is required to be reinvested either within 1 year prior to sale date or 2 years after the sale date. Where the new property is constructed, the time period prescribed for the reinvestment is within 3 years from the date of sale of the original asset.
However, the law does not clearly say that the new property must be bought only in the name of the seller and not on anybody else’s name. Hence, there are interpretations that Joint ownership can be acceptable but exemption can be limited to the share of ownership.
-Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC.
Such bonds shall be redeemable after 5 years. Only interest received on such bonds shall be taxable. There would be no taxes on redemption after 5 years.
It is advisable to take a phone consultation for detailed discussion.
Will the house be registered in your name in government records?
If yes you can claim it as exemption but do keep proper bills of the person making house for you and also you must make all payment by bank.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you.
Hi
1. Yes, there's no bar on utilizing funds anywhere if you're paying taxes.
2. No.
Exemption shall only be available if you're buying a new house property or buying a new land and constructing a house property on the same.
Transaction could be done as -
1. You buy the land owned by your father, pay applicable stamp duty.
2. Construct a house property on the land.
3. Claim exemption under section 54.
Alternatively, you can invest Rs. 5.2 lacs in section 54 EC eligible bonds for 5 years and claim capital gain exemption under section 54 EC.
No documents are to be submitted at the time of return filing.
Hello,
1. Yes, you can use the Capital gain amount on the land owned by your father.
2. Yes, the exemption under Sec. 54 would be available. No documents are required with the income tax return. However, you are required to maintain invoices for each transaction made for construction expenditure.
I hope that this answer satisfies your requirements.
Regards,
CA Hunny Badlani
